MasterCard: A Rare Buying Opportunity?

| About: Mastercard, Inc. (MA)
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I have had 'didn't buy remorse' on the name for some time.

Q4 earnings are out and I discuss the results.

With shares appearing like they will head lower today, should you buy?

MasterCard (NYSE:MA) is a name I wish I bought five years ago. I was seriously considering it, but never got in. I recently discussed my remorse over failing to buy this one. Same thing three years ago. And again last year. I can however only own so many names without becoming my own mutual fund. I digress. The stock has pulled back a bit from all-time highs, and this morning it looks to head lower following so-so earnings. MasterCard is up about 20% from where I recommended it at $90 a share even if it pulls back today in the market. Thus, I wanted to check in on the name to see if this is a rare buying opportunity, or if there are legitimate performance concerns that would impact this name going forward.

Well, the company just announced its Q4 earnings. Once again, I am impressed because the results indicate that the company will continue its slow but reliable growth. Net revenue for the quarter came in at $2.76 billion, a 9.5% increase over Q4 2015. This was primarily due to a 9% jump in gross dollar volume and an 17% increase in processed transactions to approximately 15.2 billion. I want to point out that the company is not moving away from using the term processed transactions, and will subsequently use the term 'switched transactions.' This growth is pretty sizable growth for a long-standing company like MasterCard. So revenues were up nicely but missed expectations very slightly by $30 million.

That said, expenses fell year-over-year versus last year. That is music to my ears as they say. Total operating expenses, as reported, were actually down 1% year-over-year. However, we really have to consider currency changes. When we adjust for changes in currency, we see operating expenses were flat. Total operating expenses were $1.4 billion for several reasons, and when we adjust for special items were in fact down 1% on a constant dollar basis. The decline was primarily due to the ongoing cost management initiatives and strategic initiatives. All of this led to operating income increasing 23% as reported. However, it was still up a whopping 22% when currency adjusted year-over-year. Operating margins were a strong 49.8%, though this is down from the sequential quarter.

Factoring in the growth in revenues and the expenses of the company, it reported net income of $933 million, an increase of 5% as reported. Once again, adjusting to a constant currency basis, net income actually was up 4% year-over-year. This translated to earnings per share of $0.86, which beat estimates by a penny. All in all, it was a strong quarter and the only issues with the quarter was lighter than expected revenues.

To be clear, these numbers are decent once again. Revenues were up nicely year-over-year and but missed estimates. Earnings delivered a beat thanks to fiscal discipline on the expense side of the equation. On top of it all, the company continues to be shareholder friendly. During Q4 2016, MasterCard bought back 11 million shares for approximately $1.1 billion. Here in the present Q1 2017, the company has bought back another 2.3 million shares at a cost of approximately $247 million (through 1/26/17). There is still another $4.7 billion remaining under the current repurchase program authorization. My only problem with the company is its weak dividend. The company did make a move to raise its dividend, and now pays an $0.88 annual dividend; $0.22 quarterly. This only translates to a 0.81% yield. While a dividend is shareholder friendly, I expect this dividend to grow in the coming years. I remain bullish.

Note from the author: Christopher F. Davis has been a leading contributor with Seeking Alpha since early 2012. If you like his material and want to see more, scroll to the top of the article and hit "follow." He also writes a lot of "breaking" articles, which are time sensitive, actionable investing ideas. If you would like to be among the first to be updated, be sure to check the box for "Real-time alerts on this author" under "Follow."

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.